BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

Transcription

1 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. Application of AMERICAN AIRLINES, INC. Docket DOT-OST for allocation of seven U.S.-Colombia weekly combination frequencies (Miami-Bogotá Application of SPIRIT AIRLINES, INC. Docket DOT-OST for Frequency Allocation (U.S.-Colombia ANSWER OF SPIRIT AIRLINES IN OPPOSITION TO THE APPLICATION OF AMERICAN AIRLINES FOR ALLOCATION OF SEVEN U.S.-COLOMBIA FREQUENCIES AND REPLY IN SUPPORT OF SPIRIT S APPLICATION FOR SEVEN FREQUENCIES Communications with respect to this document should be sent to: September 2, 2008 Joanne W. Young David M. Kirstein Kirstein & Young, PLLC 1750 K Street, N.W. Suite 200 Washington, D.C ( (telephone ( (facsimile Attorneys for SPIRIT AIRLINES, INC.

2 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. Application of AMERICAN AIRLINES, INC. Docket DOT-OST for allocation of seven U.S.-Colombia weekly combination frequencies (Miami-Bogotá Application of SPIRIT AIRLINES, INC. Docket DOT-OST for Frequency Allocation (U.S.-Colombia ANSWER OF SPIRIT AIRLINES IN OPPOSITION TO THE APPLICATION OF AMERICAN AIRLINES FOR ALLOCATION OF SEVEN U.S.-COLOMBIA FREQUENCIES AND REPLY IN SUPPORT OF SPIRIT S APPLICATION FOR SEVEN FREQUENCIES I. INTRODUCTION In its continuing effort, begun well over a year and a half ago, to bring competition and lower fare service to the large and important U.S.-Colombia and South Florida-Colombia markets, Spirit Airlines, Inc. ( Spirit on August 4, 2008 filed an application for allocation of the seven frequencies being returned by Continental. 1 Spirit would provide first time 1 In April 2007, Spirit initially sought reallocation of 14 U.S.-Colombia frequencies that American had warehoused for the better part of 5 years, in Docket DOT-OST Spirit s action ultimately led to the reallocation of seven of those frequencies, and Spirit has fought for those and other available frequencies consistently throughout the recent allocation proceeding in Docket DOT-OST as well. Spirit seeks leave to file this paper as a Reply in support of its application filed in Docket DOT-OST as well as in answer to American s application filed in Docket DOT-OST , and Spirit is filing this paper in both dockets.

3 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 2 of 13 competitive service between South Florida/Fort Lauderdale and Medellín, the second largest city and a very important industrial center in Colombia. On August 19, 2008, American Airlines, Inc., applied for the same seven frequencies, to provide a third daily flight in the Miami-Bogotá market. Spirit strongly opposes this most recent anti-competitive application by American to again delay new competitive service in the important U.S.-Colombia market and needlessly expend scarce government resources on an unnecessary carrier selection proceeding as suggested by American. American seeks government approval to simply further its dominance in the Colombia market, one of the most restricted in the Americas. At the same time, American seeks, along with its foreign oneworld partners, to strengthen its already dominant position in Miami and throughout the Americas through an alliance, immunized from compliance with the antitrust laws. The alliance proposal, now pending for DOT approval, includes codesharing with British Airways to Bogotá, Cali, and Medellín, as well as with Iberia to Cali and Medellín. This blatant effort to exclude competition and maintain air fares at extremely high levels should not be permitted. The Department s statutory mandate is clear: it is required to advance the public interest by enhancing competitive options, bringing low fares to the market, strengthening U.S. flag carriers, and particularly strengthening the position of qualified new entrant U.S. flag carriers. The Department can accomplish these objectives only by awarding these frequencies to Spirit. Given that there are only two applicants, the Department can make this decision now based on the applications and answers that have been filed in the two dockets and the extensive record

4 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 3 of 13 developed just months ago in the U.S.-Colombia Combination Frequency Allocation Proceeding, Docket ( Colombia Proceeding. Granting these valuable seven frequencies to American will not advance the public interest in new entry and competition, but instead only further strengthen American s virtual U.S. carrier monopoly in the South Florida Bogotá/Colombia market. Significantly, American currently holds 35 of the valuable, hard-negotiated U.S. frequencies in the U.S. Colombia market, while Spirit, the only other applicant, has only seven frequencies. In addition to contradicting the public interest policy objectives mandated by Congress, an award to American, which currently controls a whopping 83 percent of U.S. carrier South Florida-Colombia frequencies, would reverse a key finding the Department reached only three months ago in the Colombia Proceeding namely, the decision not to award American frequencies for a third daily Miami-Bogotá flight. That decision came after an exhaustive sixmonth review of the Colombia market, a decision which the Department reaffirmed just weeks ago on August 12, 2008 in a NOAT granting limited start-up date waivers to Delta and JetBlue. Awarding these frequencies to Spirit for Fort Lauderdale Medellín service will advance the Department s statutory mandate and its stated objectives by providing immediate and much needed fare relief and competition to the traveling public in the second most important City in Colombia. An award to Spirit will both preserve and strengthen the competitive balance that guided the Department s decision in the U.S.-Colombia Proceeding. It has now been almost a year since the U.S. and Colombia agreed to add 21 new frequencies. Yet apart from Spirit s daily flight in the Fort Lauderdale Bogotá market, no new service has begun. Having reluctantly just granted Delta and JetBlue delays to start their Bogotá

5 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 4 of 13 service delays that prevent the public from realizing the limited market expansion negotiated by the two countries the Department needs to act now to allocate these remaining seven frequencies to Spirit as soon as possible. II. THE PUBLIC INTEREST WARRANTS ALLOCATION OF THESE SEVEN FREQUENCIES TO SPIRIT A. The U.S.-Colombia Market Needs Increased Competition, Not a Stronger Monopoly American s application is an effort to roll back the clock and put itself in the position it was in prior to the U.S.-Colombia Proceeding. The purpose of that proceeding was to address the service and competition deficiencies that have existed in the U.S.-Colombia market as a result of the long-restricted bilateral environment. Order (May 21, After reallocating seven of the squandered American frequencies and allocating the 21 new frequencies created by the efforts of U.S. negotiators to amend the bilateral with Colombia, American still has effective monopoly control, with 83 percent of U.S. carrier frequencies in the important South Florida-Colombia market. Returning to American the just withdrawn seven frequencies would only further increase its share of the South Florida-Colombia frequencies to an overwhelming 87 percent. American s share of all U.S.-Colombia frequencies would climb back from 38 to 46 percent. Accordingly, returning these frequencies to American would not only contradict the Department s recent Colombia decision, but clearly would be directly contrary to the Congressional priorities listed in the statutory statement of policy, found in 49 U.S.C. 2 In instituting Order (November 26, 2008 the Department stated that the proceeding would assess the overall competitive environment including market structure and level of competition.

6 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 5 of (a, which must guide the Department in its allocation decisions. Particularly, the Department must consider the objectives of the following subsections: (4 promoting low priced services, (6 placing maximum reliance on competitive market forces and actual competition, (7 ensuring the adaptability of the Department to meet the current and future needs of air transportation, (9 avoiding predatory or unfair practices, (10 avoiding excessive market concentration, (12(A promoting efficiency and low prices, (12(B permitting competition to set prices for air travel, (13 promoting new entry and a competitive air transportation market, and (15 strengthening the position of domestic air carriers competing with foreign air carriers. Awarding the seven frequencies being surrendered by Continental to Spirit obviously would substantially advance all of these Congressional public interest objectives. Most importantly, it would create first time low fare competition in the large South Florida-Medellín market, now served only by American and Avianca. In addition, it would provide the first nonstop service from Fort Lauderdale to Medellín where the only service is now connecting and operated by Avianca. 3 Awarding the frequencies to Spirit, would reduce, rather than increase, the excessive market concentration that already exists in the very large South Florida-Colombia market. Significantly, in the Colombia Proceeding, the Department already weighed competing proposals by Spirit and American. The Department found that Spirit s service would improve competition and provide greater public benefits than the proposed third daily Bogotá flight 3 Fort Lauderdale is actually a more convenient airport for the native Colombians living in South Florida, as more live in counties surrounding and closer to Fort Lauderdale than Miami. Of the native Colombian population in Florida, sixty-eight percent, or 176,214, reside in Miami-Dade, Broward, and Palm Beach counties. See Ex.NK- AM-Opp-1 formerly Ex. NK-14, filed in Docket DOT-OST (Chart of Demographics Colombian Population by County South Florida.

7 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 6 of 13 proposed by American. 4 In its Show Cause Order (March 5, 2008, at 14, the Department stated that Spirit: would enhance the U.S.-Colombia competitive market structure by providing badly needed competition in a frequency-limited U.S.-Colombia market that has not seen the entry of a new U.S. competitor since the year 2000, as opposed to American s continued use of these seven frequencies to Bogotá and Medellín from Miami, representing only an accretion of service in markets American already serves. The Department s assessment of Spirit has proven to be quite accurate. Unlike Delta and JetBlue, Spirit followed through on its commitment to start service within the time frame it promised in the Colombia Proceeding by beginning daily Fort Lauderdale-Bogotá service on July 24, Although it has only been operating for a month, Spirit s load factors on this route have been in the high 80s or higher, signaling a significant demand for Spirit s ultra low fare carrier service. In addition, the demand for Spirit s ultra low fare service has been demonstrated in the open skies Cartagena-Fort Lauderdale market where traffic has more than doubled since Spirit entered the market and where Spirit already carries more than 50% of the passengers with load factors averaging in the high 80s. See Ex. NK-AM-Opp-2. Importantly, the Department made clear in the Colombia Proceeding its desire to allocate additional frequencies, if available, to new entrants like Spirit to further enhance their competitive stance against the incumbent carriers. Order , at 15 (emphasis added. Given the continued restrictions in the Colombian market, returning seven frequencies to American would directly contradict both the Department s stated desire to bring more new entrant competition to Colombia and its longstanding policy to promote new entry versus 4 Indeed, the Department found the public interest required all 28 available frequencies to be awarded to carriers other than American.

8 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 7 of 13 expanding the dominance of a single carrier. The need for new entry cannot be emphasized enough in the context of the just filed antitrust immunity application of American, British Airways, and Iberia that includes codesharing between Miami and Colombia, which will only strengthen American s overall position in markets it already dominates. As the Department stated in Order at 11: When rights for U.S. carriers become newly available in restrictive environments one of our primary goals has been to enhance competition by creating opportunities for new entrant carriers to gain market access. Indeed, in awarding frequencies in limited entry markets, the Department has consistently found new entry to be key to stimulating competition, explaining that [n]ew entry is a significant carrier selection factor because it provides consumers with new service options and incumbents with incentives to provide consumers with services that meet their requirement. Order at 6, 11, 16 (September 11, 2006 (granting new entrant carriers primary authority in three U.S. Mexico markets because they would provide market structure benefits and new service options. Spirit s entry into the Fort Lauderdale/South Florida Medellín market would provide critical structural benefits, offer consumers significant new low-fare service options, and create incentives for incumbent carriers to lower rather than raise existing fares. With only seven frequencies, Spirit very much remains a new entrant in the highly restricted U.S.-Colombia market. Accordingly, the Department, consistent with its decision in the Colombia Proceeding and longstanding precedent, should prioritize additional service from Spirit over a third daily flight between Miami and Bogotá by the dominant U.S. incumbent carrier, American.

9 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 8 of 13 American has not proffered any serious public interest justifications for the Department to reverse its finding in the Colombia Proceeding that American s proposed service has little public benefit. American s only claimed benefit is to add seats into the market because of high load factors. However, even as American complains about high load factors, its schedules for February 2009 show a shift to smaller aircraft, already reducing seats in the Miami-Bogotá market. 5 In this connection, although American provided its load factor data for December 2007, which includes the Christmas/New Year Holiday season, it curiously did not provide its triple daily Bogotá load factors for January through April 7, 2008 before it discontinued the additional Bogotá frequencies. B. Spirit s Service Would Provide Much Greater Market Benefits 1. Spirit Would Provide Important U.S.-Colombia City Pair Service Spirit s proposal to serve the South Florida/Fort Lauderdale-Medellín market provides much greater public interest benefits than American s proposal to provide a third daily flight to Bogotá, which would actually reduce competition by overwhelming the seven frequencies just awarded to Spirit to serve Bogotá. 6 Currently, 63 frequencies (or 69 percent of the 91 U.S. Colombia frequencies for restricted entry markets are used for service to Bogotá. Awarding seven more Bogotá frequencies to American would increase that percentage to 77 percent. As earlier noted, it would 5 Certainly, one would expect higher load factors in the peak season. Indeed, Delta and JetBlue sought to delay their Colombia service until May 2009, so they could start in the peak season. 6 In the Colombia Proceeding, Spirit requested a double daily to both Bogotá and Medellín so it could compete more effectively with American s schedules.

10 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 9 of 13 also increase American s total to 42 frequencies, or 46 percent of all frequencies. Medellín has only 14 U.S. carrier frequencies and unfortunately all are operated by American. Medellin is the second largest city in Colombia and the capital of the State of Antioquia. The population of its metropolitan area is more than 3.2 million. It is a robust City trading partner with the U.S., as exports to the United States from the state of Antioquia went from $268 million in 1991 to $1.8 billion in 2005, creating an estimated 360,000 jobs and helping halve the unemployment rate to 10 percent, according to government statistics and Colombian export associations. See Ex. NK-AM-Opp-3, formerly Ex. NK-Opp. to JB-DL-1, filed in Docket DOT-OST (Anthony Faiola, Sustaining the Medellín Miracle: Colombia Struggles to Hold On To Gains From Globalization, THE WASHINGTON POST, July 11, Expanding low fare service will help further the commercial ties between Medellín and the U.S., strengthening this relationship as the economy slows. The South Florida-Medellín market is underserved. Although Medellin s population is approximately 40 percent of the population of Bogotá, its non-stop U.S. carrier service is just 22 percent of U.S. carrier service to Bogotá. Indeed, as Spirit argued in the Colombia Proceeding, it could successfully operate a double daily in the Fort Lauderdale Medellin market. An award to American for a third daily to Bogotá would further skew this frequency and competitive disparity, despite the important economic and social ties between Medellin and South Florida. In addition to bringing important non-stop competition to the South Florida Medellin market, Spirit would provide convenient connecting service in multiple markets, including, e.g., Atlanta,

11 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 10 of 13 Chicago, Detroit, New York, and Washington, D.C. See Ex. NK-AM-Opp-4. 7 Significantly, Spirit has projected in the Colombia Proceeding that its service would result in a 70% increase in U.S. Medellín traffic, would generate $12 million in new economic activity, and would lower average fares by 40 percent, saving passengers approximately $12 million annually. See Consolidated Answer of Spirit to the Order to Show Cause at 11-16; Response and Objection of Spirit Airlines, Inc. to Order to Show Cause at 3-5. There is no question that awarding the seven frequencies to Spirit will vastly improve service options and greatly benefit the traveling public in this market. 2. Unlike American, Spirit Would Provide Low Fares The U.S. Colombia market, which is dominated by a few carriers principally American, is a notoriously high price market. Given the public interest policy objectives to ensure the availability of a variety of adequate, economic, efficient, and low-priced services, 40101(a(4, to prevent unfair, deceptive, predatory, or anticompetitive practices in air transportation, 40101(a(9, and to provide efficiency, innovation, and low prices, 40101(a(12(A, the Department must grant these seven available frequencies to Spirit, not American. As Spirit explained in its pleadings in the Colombia Proceeding, its average fares will be substantially lower than the fares currently charged by American or Avianca for Medellín. Currently, American s walk-up one way fare for Miami-Medellín is $ Neither American nor Avianca currently offer any discounted, advance-purchase fares. By contrast, Spirit s 7 These schedules have been slightly revised from the versions previously submitted to reflect service for 7 frequencies between Fort Lauderdale and Medellín.

12 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 11 of 13 projected fares would be approximately $250 for a walk-up fare, $169 for a 7-day advance fare, and $129 for a 21-day advance fare. Moreover, Spirit projects its fares likely will cause incumbents to reinstate advance purchase fares, which would result in roundtrip savings of approximately $33,000 per day and $12,000,000 a year for South Florida-Medellín. See Spirit s Supplemental Application, filed December 6, 2007, in Docket DOT-OST , at 18-21; see also NK-AM-Opp-5, Ex. NK-AM-Opp-6, and Ex. NK-AM-Opp-7, formerly Exhibits NK- 18, NK-22, and NK-23. Spirit is now the low-fare carrier for the Caribbean, Central America, and parts of South America, having demonstrated its commitment to the region. Spirit s low fares are in the public interest, and the Department should award these frequencies to Spirit to provide the public with significant cost savings and related consumer benefits. As noted, American s only argument for these frequencies is based on its high load factors and that it would add more seats to the Bogotá market than Spirit will add in the Medellín market. This argument is a red herring and completely disingenuous. Given the high cost of fuel, carriers are cutting capacity and abandoning markets to get higher, not lower, load factors. American itself has recently abandoned service to Barranquilla, Colombia. American would add seats to Bogotá at this time for one purpose only: to stifle competition, by further strengthening its grip on the market, keeping fares high, and preventing new low fare service by Spirit to Medellín, now essentially a captive market for American. Spirit, on the other hand, would be adding 144 new entrant competitive low fare seats a day in a market now controlled by incumbent legacy carriers. The overall benefit to travelers in the Medellín market from first time U.S. carrier competition will far outweigh any marginal

13 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 12 of 13 increase in the convenience alleged to be proposed by American, a position specifically rejected by the Department in the Colombia Proceeding. III. CONCLUSION The Department has all the information it needs to immediately allocate the seven frequencies being returned by Continental next month, without instituting a new carrier selection proceeding. Just three months ago, the Department found that the need for new entry in Colombia far outweighed American s desire to operate a third daily flight between Miami and Bogotá. Indeed, the Department expressly stated that it would have liked to have awarded more frequencies to new entrants like Spirit. Absolutely nothing has changed in the competitive landscape of the U.S.-Colombia market since the Department s decision. Service to important cities like Bogotá and Medellín is still restricted. Now, because Continental is eliminating its Cali service, the Department has the opportunity to award more frequencies to a U.S. new entrant that would provide low fares in an underserved market. Awarding the seven frequencies to Spirit will bring first time U.S. carrier competition to the large South Florida-Medellín market. Moreover, the service will be provided by a low-fare, new entrant carrier that has lived up to its representation and commitment in the Colombia Proceeding and has been the only carrier to avail itself of the open skies opportunities negotiated by the U.S. team with Colombia, even as American has ended service to Barranquilla, Continental has ended service to Cali, and Delta and JetBlue have delayed start up of their promised new Bogotá flights.

14 Spirit Airlines Answer to American and Reply in Support of Spirit s Application U.S.-Colombia Frequencies Page 13 of 13 For these reasons, the Department should, without further delay, deny American s application, and grant Spirit s competing application based on the recently developed record in the U.S.-Colombia Proceeding; the application, answer, and reply filed in Docket DOT-OST ; and the application and answer filed in Docket DOT-OST Respectfully submitted, Joanne W. Young David M. Kirstein Kirstein & Young PLLC 1750 K Street N.W. Suite 200 Washington, D.C ( (telephone ( (facsimile Attorneys for SPIRIT AIRLINES, INC. September 2, 2008

15 CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing Answer of Spirit Airlines in Opposition to the Application of American Airlines for Allocation of Seven U.S.-Colombia Frequencies and Reply in Support of Spirit s Application for Seven Frequencies by on the following persons: pmurphy@lopmurphy.com nssparks@fedex.com mroller@rollerbauer.com rpommer@atlasair.com bkeiner@crowell.com hershel.kamen@coair.com dan.weiss@coair.com recohn@hhlaw.com prrizzi@hhlaw.com sascha.vanderbellen@nwa.com bruce.rabinovitz@wilmerhale.com jonathan.moss@wilmerhale.com jeffrey.manley@united.com robert.land@jetblue.com msinick@ssd.com cdonley@ssd.com anbird@fedex.com dvaughan@kelleydrye.com kevin.montgomery@polaraircargo.com jrichardson@johnlrichardson.com efaberman@wileyrein.com howard_kass@usairways.com benjamin.slocum@usairways.com jhill@dlalaw.com mgoldman@sgbdc.com rsilverberg@sgbdc.com donna.kooperstein@usdoj.gov dwight.moore@ustranscom.mil scott.mcclain@delta.com sametta.c.barnett@delta.com byerlyjr@state.gov gmeyer@broward.org Esta.Rosenberg@dot.gov Jeffrey.Gaynes@dot.gov Brian.Hedberg@dot.gov mlbenge@zsrlaw.com jeff.morgan@nwa.com Don.Horn@dot.gov dhainbach@ggh-airlaw.com mcmillin@woa.com mchopra@jamhoff.com russell.bailey@alpa.org carl.nelson@aa.com jim.ballough@faa.gov September 2, 2008 David M Kirstein

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